This review encompasses the most important advances in liver functions and hepatotoxicity and analyzes which mechanisms can be studied in vitro. In a complex architecture of nested, zonated lobules, the liver consists of approximately 80 % hepatocytes and 20 % non-parenchymal cells, the latter being involved in a secondary phase that may dramatically aggravate the initial damage. Hepatotoxicity, as well as hepatic metabolism, is controlled by a set of nuclear receptors (including PXR, CAR, HNF-4a, FXR, LXR, SHP, VDR and PPAR) and signaling pathways. When isolating liver cells, some pathways are activated, e.g., the RAS/MEK/ERK pathway, whereas others are silenced (e.g. HNF-4a), resulting in up- and downregulation of hundreds of genes. An understanding of these changes is crucial for a correct interpretation of in vitro data. The possibilities and limitations of the most useful liver in vitro systems are summarized, including three-dimensional culture techniques, co-cultures with non-parenchymal cells, hepatospheres, precision cut liver slices and the isolated perfused liver. Also discussed is how closely hepatoma, stem cell and iPS cell-derived hepatocyte-like-cells resemble real hepatocytes. Finally, a summary is given of the state of the art of liver in vitro and mathematical modeling systems that are currently used in the pharmaceutical industry with an emphasis on drug metabolism, prediction of clearance, drug interaction, transporter studies and hepatotoxicity. One key message is that despite our enthusiasm for in vitro systems, we must never lose sight of the in vivo situation. Although hepatocytes have been isolated for decades, the hunt for relevant alternative systems has only just begun.